INTERVIEW - Spicejet sees aviation capacity shortfall by end-2010

NEW DELHI Wed Feb 3, 2010 9:49pm IST

A SpiceJet aircraft prepares for landing at the airport in Mumbai in this July 15, 2008 file photo. REUTERS/Punit Paranjpe/Files

A SpiceJet aircraft prepares for landing at the airport in Mumbai in this July 15, 2008 file photo.

Credit: Reuters/Punit Paranjpe/Files

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NEW DELHI (Reuters) - India's aviation industry will run out of capacity in the second half of the next fiscal, pushing up yields, if demand improves at the current pace, the chief executive of low-cost carrier Spicejet said on Wednesday.

"We (industry) will run out of capacity by July. But if we are less optimistic (about demand growth), then also we will run out of capacity by the end of this calendar," Sanjay Aggarwal told Reuters in an interview.

India's domestic air passenger demand went up 35 percent but capacity increased only 10 percent in December, as per data from industry regulator Directorate General of Civil Aviation.

Aggarwal says continued improvement in demand will boost yields, or average fare per customer, to "mid-3,000" rupees level from the current "low-3,000" rupees level for low-cost carriers in second half of next fiscal.

Spicejet reported a profit of 1.08 billion rupees in Oct-Dec against a loss a year ago. Strong demand, capacity reduction, lower fuel cost and cost rationalisation helped Jet Airways also to post a profit of 1.05 billion rupees, but rival Kingfisher Airlines posted a loss of 4.19 billion rupees on exceptional items and expenses incurred on grounded aircraft.

A tight demand-supply situation though will not encourage airlines to order new planes, Aggarwal said. "All the lessors out there are bearish when it comes to increasing exposure to India."

Airlines usually buy and sell new planes to aircraft lessors to lease it back for operations.

"If capacity addition doesn't go beyond 10 percent and Air India slashes capacity by the planned 30 percent, there will be a capacity crunch in the third quarter of next fiscal," Kapil Kaul, chief executive, Indian subcontinent and Middle East, Centre for Asia Pacific Aviation (Capa), an aviation consulting firm, said.

Capa forecasts a 15 percent passenger growth in Indian avaition and 5-7 percent rise in yields for next fiscal.

Spicejet saw passenger growth rise 55 percent in the December quarter. It also improved market share in the quarter to 12.5 percent from 10.5 percent a year ago.

For 2009, SpiceJet had a market share of 12.4 percent and Jet Airways 25.4 percent while Kingfisher Airlines' share was 23.9 percent.

"Market share improvement now will be marginal because we are already filling up our planes as much as we can," Aggarwal said.

Spicejet plans to add 5 planes and hire 200 staff, including 50 pilots, in a year, to protect and boost market share.

Aggarwal said there was no fare war being fought at the moment, but some airlines' pricing action reflected that "they were either trying to shore up cash position or were chasing market share."

The company plans to build a war chest of $50-75 million next fiscal year to power its growth and meet any spike in operational cost. Aggarwal didn't specify the mode of fund raising.

The airline has been looking for inorganic growth and was speculated to be in talks with a domestic airline last year for a possible acquisition.

"I wouldn't say that if nothing happened in a downturn, nothing will happen now. Even in downturn no one was desperate (to sell out)."

(Editing by Sunil Nair)

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